Rupee opens 10 paise higher at 93 against US dollar amid RBI curbs(Pixabay)AI Quick ReadThe Indian rupee began the week on a positive note on Monday, April 6, buoyed by the carryover impact of the central bank's recent measures, although ongoing demand for oil and selling by foreign investors might dampen the overall mood.
The rupee started off at 93 against the US dollar, following its close at 93.10 on Thursday, according to traders. Indian financial markets were closed on Friday on account of Good Friday.
The Indian rupee surged by 1.8% last week, marking its strongest performance in more than four years, following the Reserve Bank of India's implementation of position limits on banks and corporations, which restricted onshore-NDF arbitrage activities.
The RBI has enforced stricter regulations to limit speculative activities by setting a ceiling of $100 million on banks' net open positions, imposing limitations on non-deliverable forwards (NDFs), and prohibiting the rebooking of contracts that have been cancelled.
This prompted a reduction of bank positions, resulting in the selling of dollars in the onshore market. Banks are required to reduce their positions to the levels set by the RBI by April 10.
As per experts, this wasn't solely about tightening policies; it compelled the market to respond. Financial institutions and traders with long dollar positions quickly moved to reverse them. Consequently, a significant amount of dollar selling inundated the market, causing the rupee to soar rapidly in a brief period.
Additionally, market analysts indicated that the Clearing Corporation of India Ltd (CCIL) intervened to promote stability by raising volatility margins from 20% to 25% in foreign exchange transactions.
This adjustment implies that participants are now required to allocate more capital to their positions. It serves as a protective buffer, ensuring that the system stays stable even when market fluctuations are sharp. However, it also increases the cost of trading, which may help curb excessive risk-taking, according to experts.
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